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ALTHOUGH THE PLAINTIFFS’ $96,000, CONSTITUTING TWO MONTHS’ RENT AND A SECURITY DEPOSIT, WAS TRANSFERRED TO DEFENDANT FROM AN ATTORNEY’S IOLA ACCOUNT, THE $96,000 CONSTITUTED AN “IDENTIFIABLE FUND” WHICH DEFENDANT “CONVERTED” WHEN IT WAS NOT RETURNED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Rodriguez, over a two-justice dissent, determined the $96,000 transferred from an attorney’s IOLA account to defendant landlord was an “identifiable fund” which was a proper subject of this conversion action. The fund was for two months rent and a security deposit on a lease. But the lease was never signed. By keeping the $96,000 defendant had converted the “identified fund.” One of the points in the opinion was that the transfer of funds to an attorney’s IOLA account does not necessarily render the funds incapable of being “identified:”

… [W]e now clarify that our prior decision in SH575 Holdings [195 AD3d 429], which found that funds were not specifically identifiable by virtue of being transferred into the IOLA account of an attorney involved in a Ponzi scheme, should not be read to preclude a cause of action for conversion when funds at issue have been commingled to any extent. Here, notwithstanding the funds’ transmission through plaintiffs’ attorney’s IOLA account, the funds’ temporary presence in that account did not constitute commingling under any measure pertinent to this cause of action. While the funds were in plaintiffs’ attorneys’ IOLA account, they remained plaintiffs’ funds. Consequently, this conclusion is not at odds with this Court’s holding in SH575 Holdings. Family Health Mgt., LLC v Rohan Devs., LLC, 2022 NY Slip Op 03796, First Dept 6-9-22

Practice Point: Here the plaintiffs’ security deposit and two-months rent amounting to $96,000 were transferred to defendant landlord from an attorney’s IOLA account. However the lease was never signed and defendant did not return the money. Despite the fact that the money was deposited in the IOLA account, it remained an “identifiable fund” and was therefore a proper subject for this conversion action.

 

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